Best mortgage rates
If you’re looking to take out a home loan any time soon it helps to have some knowledge about mortgage rates. These figures will have a significant impact on how much you will be repaying each month and how your disposable income will be affected. What mortgage rates specifically are and how they are calculated is not that complicated but there are a few areas that do need further explanation. At SimpleFastMortgage.com we pride ourselves on delivering a transparent and cost effective service, so let us break it down for you.
What are mortgage rates?
Simply put mortgage rates determine the amount of interest you will pay back on your home loan each month. It is calculated as a percentage of the overall cost of the loan. This number is generally determined by the lender and will take into account a number of different factors, which is discussed a little further on. These rates can be fixed at a specific rate each month or they can be variable.
Fixed-rates v adjustable rates
When it comes to taking out a mortgage, you have the choice of a fixed interest rate or an adjustable-rate mortgage (ARM). Both have certain advantages and it depends entirely on your own specific circumstances which option to pick. A fixed-rate has the obvious advantage of remaining the same throughout the duration of the mortgage, thus the borrower knows exactly how much money they will have to pay back throughout the course of the loan. If the borrower’s financial position changes and they are looking to adjust the terms of their home loan rates then they will have to refinance.
The alternative is the adjustable mortgage. This type of mortgage has the advantage of having good introductory rates, which tend to be lower than fixed-rate mortgages, though these rates will increase will exponentially as the years and months go by. In a lot of cases people will want to switch to a fixed-rate mortgage once the interest rate increases begin to bite. In this case the property will have to be refinanced. Refinancing is a common practice and is often financially lucrative for those with good credit ratings.
How are these rates calculated?
Your lender will determine the specific mortgage rate you will end up paying. However, there are a number of factors they will take into account when coming up with this number. One of the main ones is the 10-year Treasury bond yield. If the yield is going up, interest rates will generally rise in kind and drop when the opposite is true. While most mortgages tend to last for 30 years, after 10 years people tend to have paid them off or will choose to refinance, so the 10 year yield is often the best judge of the market. It is by no means an exact science however. A simpler factor that will help determine the rates is just how well the economy is doing. If the economy is not doing well, the fed makes adjustments and mortgage rates will fall.
The main thing a lender will look at before determining your interest rate is the level of risk involved. Just what are the chances that the borrower will default on the loan? The higher the risk of default, the higher the rate of interest. This is a case of simple math. If the lender receives more in interest rates now it helps guard against losing money in the future if the borrower defaults.
A borrower’s credit score will be looked at as well as the size of the mortgage they are looking to take out. A good credit score will indicate a lower risk to the lender and thus ensures a lower rate of interest on the loan.
A good way of determining what sort of loan you can afford and what rates you will have to pay back is to pre-qualify for your loan with your lender of choice. They will look at your current financial situation compared with the wider market and offer you advice on your options. Alternatively, take a look at our mortgage calculator which should give you a good idea of the costs involved in home ownership.
What if I want to change my rates?
If you do want to change the terms of your mortgage and secure better mortgage rates then you will need to refinance your property. This process involves swapping your old mortgage for a new one. It involves paying off the old mortgage and incurring a number of charges as result. An attorney will have to be paid for as well as general closing costs. These costs can often run into the thousands. However, if the borrower’s credit rating is good enough it is still possible that the deal on a new mortgage will be beneficial enough to offset these charges. In most cases refinancing occurs when people want to swap their adjustable rate mortgage for a fixed-rate one or when they want to release some of the equity on their property. In this case the lender appraises their property and decides how much they are willing to lend the borrower. The rest of their current mortgage is paid off using this money and the balance is given to the borrower. In both these cases the result should be lower loan repayments and better mortgage rates.
Mortgage rates while relatively straightforward to explain have a huge impact on the borrower’s financial future. These rates determine the overall cost of their loan so it is very important they get the best deal possible. To do this they need the best advice they can get. At SimpleFastMortgage.com we have decades of experience helping people get the right deal for them. We pride ourselves on having some of the best mortgage rates around. We analyze the market and offer tailored advice to suit each customer’s individual needs.
If you have any questions about mortgage rates, about home ownership in general or simply want to know a bit more about what options are available to you, then feel free to get in touch and we will do our best to answer any and all questions.